One often confusing part of a business sale transaction is how vehicles are dealt with and transferred from the seller to the buyer at closing. Here we are going to break down how it typically works, so you know what to expect and how to handle it all.
Sellers Should Prepare for the Transfer In Advance
If the vehicles aren’t owned by the seller free and clear, then arrangements will need to be made to make sure they are paid off either before or at closing. It is SUPER IMPORTANT that a seller communicate with the closing attorney as to what they want the seller to do regarding the payoff of the amount still owed. In many cases, the closing attorney will use the closing proceeds to clear the debt still owed on vehicles being sold as part of the business. Sometimes if a seller pays off the loans too close to closing, there could be issues getting a clear title if the payoff wasn’t done correctly. So, the best thing for a seller to do would be to find out from the closing attorney how they want them to handle payoffs, before they do anything themselves.
Of course, if a seller wants to pay off any debts on vehicles well before listing their business for sale, then that makes everything easier if there are no loans or leases on any of the vehicles. Remember, in most cases, businesses are sold debt-free, and it is unusual for a buyer to assume any debt of the seller’s, including vehicles. That’s why any vehicle loans are typically paid off at or before closing.
Vehicle Titles are Signed Over at Closing
The seller will need to send copies of the titles to the closing attorney once the business is under contract, so they can do their lien searches, but the seller will also need to bring the original titles to closing, so that they can sign over the titles of the vehicles to the buyer at the closing table. So, for sellers who might be missing a title, in order to sign it over to the buyer, please make sure to order a new one through the DMV well in advance of closing, so you have it to bring with you. Again, check with your closing attorney to verify their closing procedures, as each closing attorney will do things a little bit differently.
Buyer Needs to Obtain Insurance
A few weeks before closing, the buyer needs to initiate the process of getting quotes on commercial auto insurance for the vehicles that are conveying with the sale. You will need to get vehicle information such as the VIN, year, make and model of the vehicles to be insured, as well as the name, date of birth, and driver’s license number for all drivers. Insurance companies will quote based on driving records, so make sure the employees have records that are as clean as possible. If they aren’t, you will have trouble getting insurance or your premiums will be very high. Make sure to shop around and bind your chosen insurance policy to include the closing date.
Make a DMV Appointment Right After Closing
It is recommended that you make an appointment at the DMV for an hour or 2 after your closing takes place. Ideally you want to go directly from the closing attorney’s office to the DMV to get those vehicles transferred immediately. Buyers will need the titles that were signed over from the seller at closing, proof of insurance, and a method of payment acceptable to the DMV to pay for the registration. You should be able to walk out of the DMV with registration, tags, and new license plates. Once registration is complete, it is important to remember to keep copies of the registration on file, as well as in each of the vehicles. Each of the vehicles should also have proof of insurance in them as well.
The buyer will have to pay sales tax for any titled vehicles that are sold with the business, so just be prepared for that. See your CPA or accountant for specific questions about taxes.